Getting more oil in the pipeline: new production, new revenues, new hope.

• Author: Bradner, Mike
• Position: OIL & GAS

There is cautious optimism now that the gamble by Governor Sean Parnell and the Alaska State Legislature in passing a major restructuring, and reduction, of the state's oil production tax will result in new production and new revenues to the state.

Within days of lawmakers' approval of Senate Bill 21 (SB21), the bill making the tax changes, on April 14, ConocoPhillips announced new work in the North Slope fields it operates. A few weeks later BP announced new work in fields it operates.

If the new projects being planned and evaluated by the two companies are done, they are likely to total more than $5 billion in new investment. There is, in addition, new work planned by independent companies like Brooks Range Petroleum, a small Alaska-based company, and Pioneer Natural Resources, a large independent based in Dallas, Texas.

Companies are also exploring. Although they are not yet projects, Repsol, the Spain-based major oil company, made three oil discoveries in three exploration wells it drilled this past winter season, and two of them very encouraging, the company says.

Although Repsol's drilling has been underway for two winter seasons, and prior to the passage of SB21, the company says that the prospect of a tax change encouraged it to come to Alaska in 2010, when the governor first proposed the reduction. Parnell's bill didn't pass that year or the following year, but passage of SB21 in 2013 has increased the likelihood that Repsol will be able to develop at least two of the discoveries it made early this year, Repsol has said.

Fitting Scenarios

Meanwhile, all of this fits a scenario developed by the state Department of Revenue and predictions by consultants to the Legislature that the tax changes made by SB21 will result in more oil and more new revenues than the previous tax would have produced. In fact, the new projects announced so far come close to a scenario developed by the department where SB21 would generate about $1 billion a year in additional state income compared to what the previous tax would have generated.

In the department's Fiscal Note for SB21, the analysis of the financial effects of the law change, the estimate was for a $300 million revenue reduction in Fiscal Year 2014, the state budget year that began July 1.

Under one scenario in the fiscal note that is actually similar to what is playing out, there would be four additional drill rigs put to work in the producing fields, one new well pad in an existing field, and...